Shares in Equatorial Palm Oil soared 40% after the palm oil minnow revealed it was
in talks over a takeover by Malaysia-based giant Kuala Lumpur Kepong, which would
gain a foothold in Africa through a deal.
Shares in Equatorial Palm Oil – which in September admitted "material
uncertainty" over its future thanks to funding difficulties at a joint venture
with Biopalm Energy - touched 7.0p in early deals on Tuesday.
The jump, to a level which valued the group at £14m, followed
the announcement that it "is in early stage discussions" over a deal with Kuala
Lumpur Kepong, the Kuala Lumpur-listed vegetable oils and property leviathan with
a stockmarket valuation of £4.8bn ($7.7bn).
KL Kepong is considering a number of options for the deal,
potentially limited to funding the Equatorial Palm Oil's joint venture with Biopalm.
The 50:50 joint venture, named Liberian Palm Developments,
is developing palm plantations in Liberia, in West Africa, but has run into
funding hiccups, highlighted by a dispute with Biopalm over injecting further cash.
However, KL Kepong may also make an offer "for all or part"
of Equatorial Palm Oil, with City takeover rules requiring a decision by
November 12, Wednesday's statement said.
For Equatorial Palm Oil, a deal would dispel a cloud stemming
from the funding dispute, which the group revealed in September had prompted it
to advance $8.0m to the joint venture "in anticipation of the provision of the
external funding by Biopalm", which is owned by India's Siva Group.
However, Equatorial Palm Oil acknowledged that while it was
in "advanced" talks over "a number of short term facilities and funding
solutions", there was no guarantee of these negotiations succeeding.
This meant "the existence of a material uncertainty which
may cast significant doubt about the group's ability to continue as a going
Equatorial Palm Oil shares earlier this month hit an
all-time low of 2.77p.
For KL Kepong, a deal would represent its first venture into
Africa, a continent where rivals such as Sime Darby and Golden Agri-Resources have
already gained palm oil concessions, of 220,000 hectares and 350,000 hectares
Equatorial Palm Oil has a 169,000-hectare concession, although
a planting programme is still in its infancy.
Palm oil groups are targeting West Africa for expansion
after the saturation of the industry in Indonesia and Malaysia, the top two
Oil palms can be grown in a relatively narrow band around the
equator, competing largely with cocoa and rubber for land.
The deal was viewed by London broker VSA Capital as
fulfilling its expectations of Equatorial Palm Oil proving attractive to one of
the Asian majors.
The broker restated a comment that "with considerable
opposition to the granting of further large-scale palm concessions in Liberia,
and Siva apparently reneging on some of its funding commitments, we would
imagine it is likely that another of the large South East Asian palm oil
producers might look to acquire Equatorial Palm Oil".
Equatorial Palm Oil shares eased back to 6.43p in late morning
deals in London, a gain of 33% on the day.